(EW) Edwards Lifesciences Announces Share Buyback

Edwards Lifesciences Corporation (EW) recently announced a new share repurchase program worth $500 million. At the end of the second quarter of fiscal 2011, the company was left with $240 million of authorization. Edwards expects to repurchase approximately $100 million worth of additional shares during the third quarter of the current fiscal.

Edwards exited the second quarter of fiscal 2011 with $468.2 million in cash and cash equivalents (up from $396.1 million at the end of December 2010) and total debt of $174.8 million. Free cash flow generated during the quarter was $42.1 million and the company anticipates it to be within the $190?$200 million level for the year. Moreover, 970,000 shares for $83.2 million were repurchased during the most recent quarter.

While the latest share buyback program is an attempt to reward shareholders, current investor focus is on the potential US approval of Sapien transcatheter heart valve (THV) for Cohort B patients (considered unfit for surgery). Edwards is confident of receiving approval by October 2011 and expects to record approximately $20–$25 million during the first quarter of Sapien’s launch in the US.

In July 2011, Sapien received favorable recommendation from the advisory panel of the US Food and Drug Administration (FDA). However, the panel expressed concerns about vulnerability to neurological problems, particularly stroke, in patients treated with Sapien.

The Centers for Medicare & Medicaid Services (CMS) is also concerned about high stroke rates and decided to initiate a National Coverage Analysis (NCA) of transcatheter aortic valve replacement (TAVR). Any unfavorable reimbursement decision from CMS could have an adverse impact on the potential market of the valve.

The risk related to stroke also poses a challenge for potential approval in Cohort A patients. Although survival rate for patients treated with Sapien (under Cohort A) was similar to those treated surgically, the former group experienced a significantly higher risk of stroke.

In Europe, Edwards operates in a highly competitive environment with the strong presence of Medtronic (MDT). Moreover, Boston Scientific (BSX) is also working to enter the THV market banking on the acquisition of Sadra Medical.

We currently have a Neutral recommendation on Edwards, which corresponds to a Zacks #3 Rank (Hold) in the short term. While Medtronic carries Neutral recommendation, in line with Zacks # 3 Rank (Hold) in the short-term, we are Outperform on Boston Scientific, which corresponds to Zacks # 2 Rank (Buy).

BOSTON SCIENTIF (BSX): Free Stock Analysis Report

EDWARDS LIFESCI (EW): Free Stock Analysis Report

MEDTRONIC (MDT): Free Stock Analysis Report

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